Hi there, marketingmuses. 
 

Credit memo is usually created if you want to use a credit as a payment to a future invoice.

As you mentioned and shown in the screenshot, the initial deposit is still recorded in your account. This can be the reason why there's a negative balance in the customer's account.

If you want to keep the original payment in the record, you can directly create a refund receipt or check to refund the customer instead. Otherwise, applying the credit memo as a payment to the original invoice will still leave a negative balance. 

I also checked the screenshots and it looks like the Credit Memo was not applied successfully as a payment to the original invoice. Let's open the invoice again and redo the process:

1. Click the 1 payment made link under the PAID status.
2. Click the date of the payment.
3. Make sure to check the box of the unapplied Credit memo in the Credits section.
4. Click Save and close.

Let me share these articles for more details on how to record a refund or apply a credit memo: 

• Create and apply credit memos or delayed credits in QuickBooks Online
• Record a customer refund in QuickBooks Online

I'll be around if you nee anything else.